Four Big Reasons Small Business Owners Need Life Insurance
For many small business owners, buying life insurance for their business and for their employees, isn’t at the top of their priority list. Many think that it isn’t necessary, while others think that it’s just too expensive and unattainable for their small business. But what many fail to realize is that life insurance can be very beneficial to any business, no matter how small. Below are some ways that big companies use life insurance to benefit their business and secure their investments.
Increase Employee Retention Rates
Many big companies and corporations use financial incentives called “Golden Handcuffs” to encourage employees to stay with a company. This is usually offered to important key employees such as management and above. Usually, high yielding life insurance policies are part of the “golden handcuff” incentive package. Employees are drawn to these incentive packages and for employers, they can usually provide hundreds of thousands of dollars in coverage for a small fraction of the cost.
You can further reward your most important employees, and keep them with your company with an Executive Bonus Plan or Section 162. An executive bonus plan is a method of compensating selected key employees by paying the premiums of a life insurance policy on the employee’s life. Employees loves this because they own the policy and they have control over the cash value and the naming of beneficiaries. Employers benefit from it because premiums are immediately tax-deductible.
When you have your own business, you are faced with risks every day. Hiring employees and training them, especially to a manager role or higher, takes a lot of time and money. Should a key employee die unexpectedly, companies have the potential to lose a lot of revenue, not to mention all time and money they will have to spend in hiring and training someone new. This is why many companies take out life insurance policies on their key employees. They then use the money from the policy should such an unfortunate event happen to aid in the loss of revenue and cost of looking for someone new.
The purpose of obtaining a term life insurance policy is to financially protect our loved ones when we pass away. But what about your business? Do you have anything in place to protect it when you pass away? This is where a buy/sell agreement comes in. This is a contract that outlines what will happen to your business interest in case of death or disability. When your buy-sell agreement is funded with life insurance, the policy owner (usually a co-owner of the business or the business itself) uses the policy proceeds to buy your business interest at your death. This helps assure that the business you worked so hard in creating continues to provide for your family and employees.
Life insurance provides many benefits to all business owners, no matter how big or small their company may be. Any of the above examples used by larger companies can and should be applied to small businesses as well. Cost-U-Less has helped many business owners purchase life insurance. Call or visit one of our locations for your free life insurance quote today!